Income tax distortions in Brazil are huge – 01/20/2023 – Rodrigo Zeidan

Income tax distortions in Brazil are immense, both for individuals and corporations. However, the lack of updating of the Income Tax table is not one of them; when a government fails to update it, it is simply raising taxes for salaried Brazilians.

Like much of the tax system in Brazil, the Personal Income Tax (IRPF) rules are full of trinkets. Most are handouts that might make sense at first glance, but are inherently unfair in one of the most unequal countries in the world.

Two of the main trinkets made with good intentions, but which should be reviewed, are the Income Tax exemption on pensions for people with serious illness and the lack of limits on deductions for health expenses from the tax calculation base.

In both cases, the problem is not fraud, which must exist, but the fact that the State must not, at the same time, offer a universal health system and indirectly subsidize those who are not going to use it. And no, the “I wouldn’t mind paying tax if I got it back” argument doesn’t make sense. In any country there are net contributors and net recipients of taxes. Usually, those who complain that they pay too much Income Tax are among the richest in the country. Neither in Brazil, nor in Denmark, nor on Pluto should someone who is among the richest in a society get back what he pays in taxes.

My mother-in-law has the benefit of not paying Income Tax on her retirement because she had cancer, despite being cured (20 years ago!) and not having any sequelae from the disease. This is nonsense.

It seems mean to discuss exemptions and reductions in health expenses in a country where public hospitals leave much to be desired. But one thing has nothing to do with the other. Most Brazilians cannot afford private health insurance. Whoever has it and wants to pay, great. But you cannot receive public money for it.

“Ah, but my father’s health expenses are immense”. Yes, this is the reality of many Brazilians, rich and poor. Why should the state subsidize your father but not the father of someone who earns minimum wage? This is a Brazilian jabuticaba. In no other country with a universal health system, those who choose the private system receive a subsidy from the State. And, certainly, if there is a limit for spending on education, there should also be one for spending on health.

But that is the reality of the country: education does not matter so much, even if there is no universal higher education system. This choice reveals the priority of public policies in Brazil: we devalue education so much that it appears in the tax code.

Discussing these distortions does not mean that they are the only ones that must be changed, nor that they should be the first. They are also politically sensitive, as we already pay a lot of taxes and charging more from the elderly or those with serious illnesses seems mean. But it is not. It is to seek a fair society for all, in which everyone contributes according to their income bracket and the exemption rules must be fair to those who also do not receive them.

Yes, it is unfair that the public health system is bad and that many families have to seek the private system. But it is more unfair to do it with everyone’s money, including the poorest.

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